Movie Gallery notes gain as credit facility launches; Fedders better on loan amendment

By Stephanie N. Rotondo

Portland, Ore., Feb. 20 - It was all about Movie Gallery Inc. Tuesday as the company launched its highly anticipated $900 million five-year credit facility. Upon news of the launch, the company's notes gained as much as 4 points during trading.

The company also announced preliminary fourth-quarter and year-end earnings. A Reuters report said the total estimated revenue came in slightly below what analysts were expecting.

After a week plagued by rumors and losses, Fedders Corp. was seen slightly better as the company filed a loan amendment that extended the maturity date of the credit facility.

There has been an expectation of a refinancing deal on the Fedders term loan, but nothing new was heard in the market on the talk during the session. A few minutes before market close on Tuesday, however, the company filed an 8-K detailing the loan amendment, as well as the company's pursuit of a refinancing.

Traders are viewing the possible refinancing as a way to "just give the company a little bit more breathing room," one trader noted. "That's exactly what happened with Movie Gallery."

As market participants came back into the office after a long holiday weekend, the overall view of the day was "painfully quiet," one insider said.

At another desk, a trader said the morning started off with several distressed names trading; then, the activity died.

"There was no follow through," he said.

The trader also noted that some people may still be out of the office as schools in New York are on break.

Movie Gallery gains

Movie Galley was named the "most active" in distressed trading Tuesday, as the company announced the launch of its refinancing deal.

The movie rental chain saw its 11% notes due 2012 up 4 points over the day. One trader said the bonds traded as high as 90 in the morning, closing the day at 89. At another desk, a distressed trader pegged the bonds at 89-89.5 bid, 90-90.5 offered.

"If it weren't for Movie Gallery, it would be dead today," the trader said.

Another market participant said the notes last traded at 89 bid, 89.25 offered.

"Looks like [Movie Gallery] was all the activity today," he said.

Movie Gallery announced Feb. 7 that it had entered into an underwriting agreement with Goldman Sachs Credit Partners LP to refinance its debt. Details were not released at that time, but the company saw an upswing in its notes. The company had said proceeds from the refinancing would cover existing bank debt and general corporate purposes.

After a bank meeting Tuesday, the Dothan, Ala.-based company released details of its $900 million five-year credit facility. The facility will consist of a $100 million revolver at Libor plus 400 bps, a $525 million term loan B talked at Libor plus 400 bps, a $25 million synthetic letter-of-credit facility at Libor plus 400 bps and a $250 million second-lien term loan talked at Libor plus 700 bps.

The second-lien term loan is non-callable for one year. At year two, the loan is callable at 104, followed by 102 in year three. For every year thereafter, the loan is callable at par.

The company expects the transaction to close on or before March 15.

With the launch of the refinancing deal came the company's estimated fourth-quarter and year-end earnings. The preliminary results indicate $2.54 billion in total revenues for fiscal 2006 and an operating income of $102 million. An operating income of $24 million is expected for the fourth quarter.

Final results are expected to be announced in March.

Fedders up slightly

The notes of air quality solutions manufacturer Fedders were seen slightly better at the start of the week, after previously seeing a week of losses. Rumors of default had plagued the company, and traders speculated that the company would refinance its term loan.

At the close of trading, traders said the 9 7/8% notes due 2014 were trading in the low-60s, with one insider placing the bonds a point higher from Friday at 61.

After the holiday weekend, Fedders filed an 8-K with the Securities and Exchange Commission, amending the term loan and extending the maturity date.

According to the amendment, the Liberty Corner, N.J.-based company is required to pay principal installments on the loan in the amount of $300,000 on Feb. 21, and on each successive Wednesday through March 14. The remaining balance, plus an extension fee of $500,000, is due March 16. The fee may be reduced to $350,000 if the debt is paid in full before that date.

Fedders also said in the filing that it is continuing to pursue negotiations with other lenders regarding a new senior secured credit facility that would replace its existing facility with Wachovia Bank and The CIT Group Business Credit, Inc.

The amendment was completed on Feb. 16.

Broad market same or better

Overall, distressed bonds were seen unchanged to slightly higher during the trading day.

Insight Health Services Inc. saw its floating-rate note at 95, deemed unchanged by one trader.

"There wasn't much price movement, but it was trading," one trader said.

In bankrupt airline paper, a trader noted that Northwest Airlines Inc.'s 10% bonds due 2009 were better but did not trade heavily. He placed the notes at par plus 1.

Meanwhile, shrub and plant supplier Hines Horticulture Inc.'s 10¼% notes due 2011 caught a bid at 85. A market insider said that was in line with its Thursday and Friday bid.

Distressed auto name Dura Automotive Corp. saw its 9% notes due 2009 "a little bit better" in afternoon markets, the insider also said. He placed the bonds at 6 bid, 6.5 offered, noting they traded as high as 7 during the day.

Sara Rosenberg contributed to this article.

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